NGRM BRIEFING & WORKSHOP€¦ · •Stress Testing for Default Fund (DF), ... Aug 2019 Sep 2019 Oct...

NGRM

BRIEFING & WORKSHOP

January 2020

1. PREPARATION & READINESS

33

AGENDA

What is NGRM ?

Tentative Schedule

Key Activities

Tentative Daily Flow & Operational Highlights

Margin Simulation

Technical Setup

Upcoming Activities & Important Information

1

2

3

4

5

6

7

4

What is NGRM ?

CCASS

NGRM

Decommission risk functions to NGRM

• Single risk engine for risk monitoring & calculation for ALL markets, i.e. Hong Kong,

Shanghai & Shenzhen markets

• Initial Margin, applicable to Hong Kong market only :

flat margin rate portfolio margining

• Stress Testing for Default Fund (DF), applicable to Hong Kong market only :

same scenarios for ALL multiple product-specific scenarios per security

New Infrastructure

Report Access

Platform (RAP)Centralised report platform for retrieval of NGRM reports & data files

5

HKEX Data Centers

What is NGRM ?

- Infrastructure

Existing Setup NGRM Setup

Participant Premises

CCASS Terminal

(C3T)

NGRM GUI

SFTP Client

Participant Gateway

(PG)

Report Access Platform

(RAP)

NGRM

CCASS

SDNET WAN Please see

next slide for

more

information

6

Payment Processing

What is NGRM ?

- Overview

Delegated Management

Services (DMS)

Deposit & Withdrawal

Nominee Activities

Collateral Management

CCASS

CNS Positions / Collateral info

Collateral Requirements (e.g. Margin)

Designated Banks

CCASS ReportsNew

Modified

Obsolete

Access Management

Risk Monitoring

Marks & Margin

Calculations

Default Fund Resizing

NGRM

NGRM ReportsNew

Payment Generation

CNS & SI Settlement

Trading System

OTP-C

Margin Simulations

Report GenerationReport Download

RAP

Payment

Instructions

new single risk engine for

risk monitoring &

risk exposure calculation

Report Access Platform

new secure file transfer protocol

(sftp) facility for retrieving NGRM

reports & data files

Shift risk functions to NGRM

Conduct collateralization based on

risk calculation result from NGRM

and then proceed to payment

collection

7

What is NGRM ?

- Changes

1. Key risk collaterals are Marks, Margin, Guarantee Fund, Mainland Settlement Deposit and Mainland Security Deposit.

Ma

jor

Ch

an

ge

s – new Risk Model for HKSCC, applicable to Hong Kong Securities only

– change the existing flat rate margining to portfolio margining:

- based on individual stock volatility

- allow risk offset among selected stocks

Fu

nctio

nal C

ha

ng

es – shift risk collateral requirement calculation1 (e.g. margin) to NGRM

– continue to generate payment obligations reports

– new online views/functions : margin simulation, enquiry of position data &

margin data

– new reports : risk collateral requirements and risk data files (e.g. RPFs)

CCASS

NGRM

RAP– new facility : for retrieval of new NGRM reports & data files via secured file

transfer protocol (sftp)

8

2019

Dec

2020

Jan

2020

Feb

2020

Mar

2019

Aug

2019

Sep

2019

Oct

2019

Nov

2020

Apr

2020

May

2020

Jun

2020

Jul

2020

Aug

2020

Sep

2020

Oct

2020

Nov

In ProgressCompleted

Production

Launch

Practice Margin Simulator

RPF

Explanatory

Workshops

Margin

Comparison

(Daily)

Margin Comparison (Monthly)List of

reports &

data files

Practice

Margin Simulator

Mar – Aug 2020 (3-6 months)

Margin Comparison

Reports

Mar - Aug 2020

Phased Migration

Approach

Sep – Oct 2020 (1 month)

Risk

Parameter

File (RPF)

Workshops

Dec 2019

Impact Analysis

Reports

Mar 2020

Margin &

Stress Test

RPF Guides

Market

Rehearsal

NGRM Registration

Connectivity

Test

Create DA login

ID

CP-DA create Users

Functional

Briefing

MR

Briefing

NGRM

& RPF

Briefing

Methodology

Seminar

Roadmap &

Connectivity

Briefing

Rollout

Briefing

Live

Connectivity Test

Technical

Guide

RAP Registration

Technical Readiness

Phased

Migration

NGRM

User Guide

PC &

Network

Requirement

Tentative Schedule

Familiarisation

Programme

Briefing

Planned

Report Access

Platform (RAP)

TODAY

Margin

Simulation

User Guide

Connectivity

& Config

Guide

Market

Communications

Margin

Comparison

NGRM

• Business Functions

• Access Management

Functions

9

Target group:

Treasury, payment operations

Key activities:

• Thorough understanding on new and modified payment reports for updating internal funding workflow

• Understand margin impact of new model (e.g. via margin comparison reports)

Funding preparationClearing, settlement and operations

Target group:

Operations

Key activities:

• Thorough understanding on new and modified risk and payment reports for updating operational workflow

• Get familiarized with functionalities of NGRM (e.g. margin simulator)

• Understand margin impact of new model (e.g. via margin comparison reports)

Technology

Target group:

IT, vendors, system service providers

Key activities:

• Reconfigure & setup Report Access Platform (RAP) & NGRM

• Modify/develop BOS, if required

Tool:

Online video

Support: Dedicated hotline and email

Information: Latest materials on HKEX website

Phased Migration Approach: Initial phase with technical ready only,

business launch upon full migration

Key Activities for the launch

Risk model simulation

Target group:

CPs using RPF to estimate margin

Key activities :

• In-depth study on Initial Margin Calculation Guide

• Attend RPF Workshop

• Develop own margin simulation & risk management tools

More details on the

Familiarisation Programme

in March 2020

https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=2ahUKEwi927HogpneAhUTF4gKHUoNApAQjRx6BAgBEAU&url=https://www.vectorstock.com/royalty-free-vector/glowing-and-turned-off-light-bulb-vector-610001&psig=AOvVaw21S_lW4J2lFv36c0QiHLaJ&ust=1540262417524395

10

Tentative Daily Flow – Marks & Margin in Hong Kong Market

CC

AS

SR

AP

NG

RM

12:00 13:00 15:00 17:00 18:0014:00 16:0011:00 09:0019:00 20:00

Risk calculation and risk specific reports migrate to NGRM and RAP respectively but

payment reports and processing remain unchanged in CCASS

T Day

~16:45 Day-end

marks and margin

estimation

Broadcast

message

~16:45 Day-end

marks and margin

estimation

Estimation

reportRequirement

report

~11:00

Intra-day marks

calculation

14:00

Payment

deadline

~11:00

Intra-day marks

calculation

Payment

report

Requirement

report 09:30 on T+1

Payment

deadline

~19:45 Day-end

marks and margin

calculation

Payment

report

Requirement

report

Requirement

report

~19:45 Day-end

marks and margin

calculation

T+1 Day

10:00

Intra-day Marks

Calculation & CollectionDay-end Marks and Margin

Estimation Calculation & CollectionTo be obsoleted

To be newly introduced

To be enhanced

No change

Note: The estimation is calculated based on margin scenarios

generated on T-1 which will be refreshed at around 19:00 for day-end

calculation. CPs are advised to add an buffer for funding preparation.

11

Tentative Daily Flow– Specific Stock Collateral (SSC) & Specific Cash Collateral (SCC)

CC

AS

SN

GR

M

SSC/SCC reduces margining positions and the covered CNS position will be exempted from

the Marks & Margin calculation if posted before the cut-off time

T Day

1. Intra-day Margin for Holiday will only be collected on the day before long holiday

Specific Cash Collateral (SCC) function time

Specific Stock Collateral (SSC) function time

09:30 15:55 18:00 20:1509:00 14:45 16:5011:00 19:3019:0011:15

Day-end Calculation

Marks & Margin

Intra-day Calculation

Marks & Margin1

Afternoon session (18:00)

Recommended latest time of

pledging SSC/SCC

Morning session (11:00)

Recommended latest time

of pledging SSC/SCC

12

Operational Highlights under NGRM

■ No change in current HK$5 million margin credit and HK$1 million DF creditMargin and DF credit

will continue

Funding

ProjectionCPs’ IM and DF requirements can fluctuate as they are calculated based on the risk of CPs’ portfolios

Margin simulation tools

(see later slides)

■ Facilitate CPs’ internal processes related to risk control and margin estimation

■ Allow CPs to replicate and simulate margin requirement for existing portfolios and

hypothetical trades

■ Practice Session will be provided for CPs before official launch

Specific Stock Collateral

(SSC) and Specific Cash

Collateral (SCC)

Mitigating measures provided by HKSCC

1

2

3

■ Relevant settlement reports (based on new margin requirement) will still be available via existing CCASS

■ Timing of most existing operations remain unchanged

■ Excess margin is refunded at day-end when exposure is reduced (i.e. upon settlement)

Other operational processes remain the same

■ CNS stock positions covered by SSC or SCC are exempted from margin

calculation

13

Margin Simulation

Subject to own business needs, to facilitate CP to conduct margin simulation & replicate the

margin calculation with (1) NGRM Only or (2) Risk Parameter File (RPF)

NGRM

To enquire

(1) estimated margin requirement based on price &

positions

To simulate margin requirements based on

(1) own portfolio

(2) hypothetical trades

Risk Parameter File (RPF)

To replicate the margin calculation and estimate

margin requirements based on

(1) own portfolio

(2) hypothetical trades

(3) client portfolios

Basic Advance

14

Technical Set Up – 3 options

Note : 1. Please refer to HKSCC Report Access Platform (RAP) Technical Guide

Please refer to Appendix for more details

Option 1

Minimum Setupuse existing C3T for RAP1

Option 2

Basic Setupuse existing C3T for RAP1

& NGRM

Option 3

Advance Setupacquire new PC for RAP1

& NGRM

Feature

Existing CCASS access

+(NEW) RAP

Existing CCASS access

+(NEW) RAP & NGRM

Hardware Existing C3T Existing C3T + NEW PC

Software

• Upgrade existing C3T to Win10 & associated JRE version

• Update PC Domain Name Server (DNS) Setting

• Install SFTP client for RAP1 & Chrome for NGRM

Network Reconfigure existing SDNet to access new DNS, RAP & NGRM

CP should start planning for the technical setup for your preferred Option accordingly

15

Upcoming Activities – tentative schedules

Event Tentative Schedule

Technical setup for RAP & NGRMFeb 2020 onward

Submit registration form for Report Access Platform (RAP)

Study new & modified CCASS / NGRM reports & data files

Mar to Aug 2020 Study NGRM User Guide

Attend Familiarisation Programme Briefing

Register & participate in NGRM practice sessions

Attend Functional BriefingApr 2020

Submit registration form for NGRM

Verify RAP technical setup & connectivity

Jun / Jul 2020 Register & attend Rollout Preparation Briefing

Study Rollout Package

Register & attend Market Rehearsal Briefing Aug 2020

Initial Phase Launch

Register & participate in Market Rehearsal Sep / Oct 2020

Official Business Launch

16

Important Information

NGRM Related Documentations

Initial Margin Calculation Guide

Stress Test Value Calculation Guide

PC and Network Requirement

HKSCC Report Access Platform (RAP) Registration Form

HKSCC Report Access Platform (RAP) Technical Guide

NGRM related information & documents are available via designated NGRM web corner :

https://www.hkex.com.hk/Services/Next-Generation-Post-Trade-Programme/NextGen-Risk-Management?sc_lang=en

https://www.hkex.com.hk/Services/Next-Generation-Post-Trade-Programme/NextGen-Risk-Management?sc_lang=en

APPENDIX

Subtitle following on two lines, Regular, 13pt

18

Appendix 1. PC Requirement for C3T, RAP & NGRM

Set Up for RAP & NGRM should be ready by Jan of 2020

Option 1

Use Existing C3T1

for RAP

Option 2

Use Existing C3T1

for RAP & NGRM

Option 3

Acquire new PC

for RAP & NGRM

CPU 1GHz 2.4GHz or faster

Memory 2GB 8GB

HardDisk 20GB 22GB

Operating System Windows 10 Pro (64 bit)

Browser IE11 IE11 (for C3T) & Chrome (for NGRM)

JRE Java 8 update 211 N/A

Layered Software Anti-virus software

Bandwidth 1M 1M2

1. Clearing Participants (CP) should review their existing C3T setting to ensure it meets the minimum PC requirement

2. Minimum requirement, CP should assess and evaluate its own bandwidth requirement based on their business needs

19

Appendix 2. Key Set Up Requirements & Timeline

N: Network related; SW: PC Software related; HW: PC Hardware related

*Dates are indicative only

# REF Key Set Up Requirements

Option 1

Use Existing

C3T

Option 2

Use Existing

C3T for ALL

Option 3

Acquire new PC

for NGRM

Action by

1 NReconfigure SDNet routing to access

NGRM functions & reportsRequired & by Apr 2020* Network Vendors

2 SW

Update PC Domain Name Server

(DNS) Setting to access NGRM

functions & reports

Required & by Apr 2020*

New PC

(follow latest DNS

setting)

PC Vendors/

Participants

3 SW

Install SFTP client for NGRM report

download (follow Report Access

Platform Technical Guide)

Required & by May 2020* Participants

4 SW/HW

Upgrade existing C3T to Win10 &

associated JRE version

• Win7 end of support in mid Jan 2020

• NGRM supports Win 10 only

Required & by Dec 2019 New PC

(running on Win10)

PC Vendors/

Participants

5 SWInstall Chrome to access NGRM

functionsN/A Required & by Aug 2020 Participants

Report Access Platform Connectivity Test will available from June 2020

20

Appendix 3. To be Obsolete CCASS Reports – Marks & Margin

Report ID Report Name

CFIPM01 Marks and Collateral Collection Report

CRMIM01Intra-day Marks and Collateral Collection

Report

CRMMG01 Intra-day Margin Payable Report

CRMMG02 Margin Payable Report

CRMAC01 Additional Cash Collateral Payable Report

CRMNP01 NCP Marks Projection Report (intra-day)

CRMNP02 NCP Marks Projection Report (day-end)

CRMNP03 NCP Margin Projection Report (intra-day)

CRMNP04 NCP Margin Projection Report (day-end)


RMAMP01 Marginable Position Report

RMAMR01 MTM and Margin Requirement Report

RMAMR03MTM and Margin Requirement Report

_Summary Version

RMASP01 Series Prices Report

RPF01 Initial Margin Risk Parameter File

DWH0081CDaily Participant Margin Multiplier

Report

To be Obsolete CCASS ReportsNew NGRM Reports available

via Report Access Platform (RAP)

21

Appendix 4. To be Obsolete CCASS Reports – Guarantee Fund

*Refer to “Default Fund Add-on” of the last report generated at around 20:30.


GFR608 Statement of Guarantee Fund Contributions

GFR616NCP(s) Guarantee Fund Contribution Projection

By Position

GFR806Guarantee Fund Risk Collateral Requirement

Report


CCMDF02 Statement of Default Fund Contributions


RMADF01 Default Fund Requirement Report

RMAMR01 MTM and Margin Requirement Report*

RMAMR03MTM and Margin Requirement

Report_Summary Version*

RMAST01 Stress Testing Report

RPF02,

RPF03 &

RPF04

Stress Testing Risk Parameter Files

To be Obsolete CCASS Reports

New CCASS Reports available via CCASS

New NGRM Reports available

via Report Access Platform (RAP)

22

Appendix 5. To be modified CCASS Reports

Report ID Report Name Description of Modification

CSEMA08

(intra-day)

Statement of Money Ledger

• Rename ‘MARGIN & PENDING MARKS’ account to ‘MARKS & MARGIN’ account

• Remove ‘OVERDUE POSITION MARKS’ account

• Modify the following money ledger descriptions

- CL CCMS Marks & Margin SH for intra-day

- CM CCMS Marks & Margin SH

- XI Marks & Mgn Collection for Chinaclear SB

- XJ Marks & Mgn Refund for Chinaclear SB

- 81 Collection of Default Fund Contribution

- 82 Refund of Default Fund Contribution

- 92 Transfer from/to Marks & Margin A/C

CSEMS08

(day-end)

CCMPY01

(intra-day)Posting / Collateralisation

Result Report

• Lists the ledger / obligations request, postings result and payment generation for

each ledger / obligations activity

• New section ‘Preferred Single Settlement Currency Conversion Result’ for

conversion of contract currency to preferred single currency for payment collection,

if applicableCCMPY02

(day-end)

To be modified CCASS Reports

23

Appendix 6. To be modified CCASS Reports (Cont’d)

Report ID Report Name Description of Modification

CRMSD01Mainland Settlement Deposit

Payable Report (Shanghai) • Removed the following info:

- Buy Turnover in SH/SZ Securities

- Overdue Short Position in SH/SZ Securities

- SPSA Sell Turnover in SH/SZ Securities

- Settlement Deposit Rate (SH/SZ) (%)

- Minimum Amount

- Monthly MSTD Requirement per last Monthly

Review

CRMSD04Mainland Settlement Deposit

Payable Report (Shenzhen)

CRMSD07

Intra-day Mainland

Settlement Deposit Payable

Report (Shanghai)

CRMSD09

Intra-day Mainland

Settlement Deposit Payable

Report (Shenzhen)

CRMGF01Mainland Security Deposit

Payable Report (Shanghai)

• Removed the following info:

- Daily average net settlement amount in

SH/SZ Securities of previous 6 months

- Mainland Security Deposit Rate (SH/SZ)(%)

- Minimum AmountCRMGF03

Mainland Security Deposit

Payable Report (Shenzhen)


RMCNM01Northbound MSTD

Requirement Report

New NGRM Reports available

via Report Access Platform (RAP)To be modified CCASS Reports


RMCNM03Northbound MSCD

Requirement Report

2. INTRODUCTION OF

MARGIN SIMULATION BY USING

RISK PARAMETER FILES

2525

AGENDA

Major Math Operations1

Overview of the Calculation Process2

Calculation Example (3 Days)3

MAJOR MATH OPERATIONS

27

Sample RPF(1)

(1) In reality, RPF is released on each business day at around 20:00. However, it is assumed that the same sample RPF is applied throughout the illustration for simplicity.

Only simple calculations are needed using the parameters specified in the RPF

Valuation_DT 1/4/2019

HVaR_WGT 0.75

SVaR_WGT 0.25

HVaR_Scen_Count 1000

SVaR_Scen_Count 1018

STV_Count 200

HVaR_CL 0.994

SVaR_CL 0.98

HVaR_Measure 4

SVaR_Measure 4

Rounding 10000

Holiday_Factor 0.7320508075

InstrumentId FieldType 1 2 3 4 5 6 7 8 9 10

700 1 0.01391 -0.01422 0.006132 0.006687 0.013556 0.01391 0.006132 0.006687 0.013556 0.013556

1299 1 0.01125 0.008827 -0.00875 -0.003115 0.006901 0.01125 -0.00875 -0.003115 0.006901 0.006901

1876 1 0.011128 -0.014789 0.006009 0.007356 0.015725 0.012936 0.005825 0.008292 0.00976 0.010167

2823 1 0.011628 -0.003311 0.001658 -0.009852 -0.001639 0.011628 0.001658 -0.009852 -0.001639 -0.001639

3690 1 0.012241 -0.016268 0.00661 0.008092 0.017298 0.01423 0.006408 0.009121 0.010736 0.011184

26883 1 0.136461 -0.129264 0.034216 0.046343 0.134202 0.136462 0.034217 0.046342 0.134203 0.134203

60954 1 -0.104288 -0.083417 0.0819 0.029439 -0.060245 -0.104288 0.0819 0.029439 -0.060245 -0.060244

700 2 0.041026 0.092873 -0.067737 -0.030462 -0.000031 0.0406715 0.0406918 0.0406778 0.0406596 0.0406699

1299 2 0.037588 0.048124 -0.042722 -0.042776 -0.000008 0.0372818 0.037268 0.0372632 0.0372858 0.0372862

1876 2 0.040616 0.076156 -0.069769 -0.038382 -0.000035 0.028877 0.034181 0.034576 0.034561 0.04067

2823 2 0.026217 0.043137 -0.036832 -0.031046 0.000021 0.0259822 0.0259914 0.0259828 0.025985 0.0259961

3690 2 0.044678 0.083772 -0.076746 -0.04222 -0.000039 0.031765 0.037599 0.038034 0.038017 0.044737

26883 2 0.254769 0.660324 -0.53648 -0.139819 -0.000034 0.2526511 0.2527275 0.2527227 0.2525469 0.2526738

60954 2 -0.321378 -0.437447 0.399873 0.404237 0.000022 -0.318807 -0.318531 -0.318547 -0.318514 -0.318721

658 3 0.12

3606 3 0.12

700 4 0.0022 0.9 300000000 500

1299 4 0.0025 1.1 100000000 80

1876 4 0.002 1.2 200000000 30

2823 4 0.002 1 250000000 30

2800 4 0.002 1 250000000 30

3690 4 0.0022 1.3 300000000 70

26883 5 700 0.0446 100 0.1784

60954 5 1299 -0.789588 100 -0.63167

26883 6 0.02 5

DSP700 7 0.5 0.5

DIV1299 7 1 0

SRI3606 7 0 0.5

28

Margin Calculation – Major Math Operations

12

3

MAX

AVG

SUM

MULTIPLY

AVERAGE

MAXIMUM

RANK

MINUS

Margin computation is using a combination of basic math operations only

6

29(1) There are 1,000 scenarios for HVaR and 1,018 scenarios for SVaR.

Major Math Operations

• E.g. Sum the dollar scenario return per scenario – Portfolio Margin (Scenario P/L for 2 positions)

SUM (Add up the values)

Stock Code Market Value FieldTypeScenario

Return 1

Scenario

Return 2…

Scenario

Return 1,000

700 -250,000,000 1 (3,477,500) 3,555,000 … 1,000

26883 200,000 1 27,292 (25,853) … 9+ + ++


P/L 1

Scenario

P/L 2…

Scenario

P/L 1,000

700+26883 -249,800,000 1 (3,450,208) 3,529,147 … 1,009

RANK (Arrange the values in ascending order)

• E.g. Rank scenario P/L – Portfolio Margin (Identification of Worst Scenarios)

Scenario P/L 1 Scenario P/L 6 Scenario P/L 5 Scenario P/L 9 Scenario P/L 10 Scenario P/L 8 … Scenario P/L 15

(3,450,208) (3,450,208) (3,362,160) (3,362,159) (3,362,159) (1,662,482) … 7,500,008

Worst Best


1

Scenario

2…

Scenario

1,000

700 -250,000,000 1 0.01391 -0.01422 … -0.000004

MULTIPLY (Find the product of values)


1

Scenario

2…

Scenario

1,000

26883 200,000 1 0.136461 -0.129264 … 0.000044

• E.g. Market value of position x Rate of return for each scenario(1) – Portfolio Margin (Scenario Returns)


1

Scenario

2…

Scenario

1,000

700 -250,000,000 1 (3,477,500) 3,555,000 … 1,000


1

Scenario

2…

Scenario

1,000

26883 200,000 1 27,292 (25,853) … 9

12

3

30

Major Math Operations (Con’t)

MAXIMUM (Choose the higher value)

Long positions

Short positions

Sum all

positions by

long or short

Choose the higher of

aggregated long /

short positions

MINUS (Find the difference between values)

• E.g. Compare the difference between position and threshold – Instrument-level LRA and Portfolio-level LRA

AVERAGE (Find the mean of the worst scenarios / weighted average as the case may be)

• E.g. Average the worst 6 scenarios – Portfolio Margin (Expected Shortfall for HVaR)

Average = -3,108,229

Scenario P/L

1

Scenario P/L

6

Scenario P/L

5

Scenario P/L

9

Scenario P/L

10

Scenario P/L

8…

Scenario P/L

15

(3,450,208) (3,450,208) (3,362,160) (3,362,159) (3,362,159) (1,662,482) … 7,500,008

Worst Best

• E.g. Max (Market value of aggregated long positions, Market value of aggregated short positions) – Flat Rate Margin

(Market Value of Higher of Aggregated Long / Short Position)

MAX

AVG

OVERVIEW OF THE

CALCULATION PROCESS

32

Model Parameters

Risk Parameter File^

(20:00)

Marginable Position

Marginable Position Report**

(11:00#, 16:45, 20:00#)

CP-specificParameters

Daily Participant Margin Multiplier

Report

(09:00)

Margin Multiplier

Margin Credit

(normally HKD 5m to each CP)

Other Risk Components

MTM and Margin Requirement Report

(11:00#, 16:45, 20:00#)

MTM Requirement

Position Limit Add-on

Credit Risk Add-on

Ad-hoc Add-on

All report available time is subject to NG system finalization.

Note (^): Model parameters will be based on previous-day RPFs for intra-day estimation.

Note (**): Position adjustments are needed if in-house settlement position is used for IM estimation.

Note (#): NCPs’ information is only updated at 11:00 and 20:00.

CPs need to gather all required information for the margin estimation

RPF

Advanced Method – Overview of the Calculation Process

33

Advanced Method – Overview of the Calculation Process (Con’t)

1. Identify applicable Market Risk Components for each instrument in the portfolio

2. Identify Margin Adjustments and Other Risk Components

3. Calculate Market Risk Components

4. Aggregate Market Risk Components and perform Margin Adjustments

5. Calculate or retrieve Other Risk Components from report

6. Derive Total MTM and Margin Requirement by adding results from steps 4 and 5

Steps to calculate Total MTM and Margin Requirement

Market Risk Components

Portfolio Margin

Flat Rate Margin

Liquidation Risk Add-on

Structured Product Add-on

Corporate Action

Position Margin

Holiday Add-on(1)

Aggregated Market-risk-

component Margin

Margin

Rounding

Favorable

MTM

Margin

Credit

Margin Adjustments

Other Risk Components

MTM Requirement


Credit Risk Add-on(1)

Ad-hoc Add-on

Total MTM and Margin

Requirement

(1) Holiday Add-on and Credit Add-on will not be applicable at launch of NGRM. HKSCC will notify CPs before the implementation.

34

Advanced Method – Sample RPF(1)

Instrument to be included in each market

risk components

1 – Portfolio Margin (HVaR)

2 – Portfolio Margin (SVaR)

3 – Flat Rate Margin

4 – Liquidation Risk Add-on

(for stocks)

5 – Liquidation Risk Add-on

(for structured products)

6 – Structured Product Add-on

7 – Corporate Action Position Margin

Valuation_DT 1/4/2019

HVaR_WGT 0.75

SVaR_WGT 0.25

HVaR_Scen_Count 1000

SVaR_Scen_Count 1018

STV_Count 200

HVaR_CL 0.994

SVaR_CL 0.98

HVaR_Measure 4

SVaR_Measure 4

Rounding 10000

Holiday_Factor 0.7320508075

InstrumentId FieldType 1 2 3 4 5 6 7 8 9 10

700 1 0.01391 -0.01422 0.006132 0.006687 0.013556 0.01391 0.006132 0.006687 0.013556 0.013556

1299 1 0.01125 0.008827 -0.00875 -0.003115 0.006901 0.01125 -0.00875 -0.003115 0.006901 0.006901

1876 1 0.011128 -0.014789 0.006009 0.007356 0.015725 0.012936 0.005825 0.008292 0.00976 0.010167

2823 1 0.011628 -0.003311 0.001658 -0.009852 -0.001639 0.011628 0.001658 -0.009852 -0.001639 -0.001639

3690 1 0.012241 -0.016268 0.00661 0.008092 0.017298 0.01423 0.006408 0.009121 0.010736 0.011184

26883 1 0.136461 -0.129264 0.034216 0.046343 0.134202 0.136462 0.034217 0.046342 0.134203 0.134203

60954 1 -0.104288 -0.083417 0.0819 0.029439 -0.060245 -0.104288 0.0819 0.029439 -0.060245 -0.060244

700 2 0.041026 0.092873 -0.067737 -0.030462 -0.000031 0.0406715 0.0406918 0.0406778 0.0406596 0.0406699

1299 2 0.037588 0.048124 -0.042722 -0.042776 -0.000008 0.0372818 0.037268 0.0372632 0.0372858 0.0372862

1876 2 0.040616 0.076156 -0.069769 -0.038382 -0.000035 0.028877 0.034181 0.034576 0.034561 0.04067

2823 2 0.026217 0.043137 -0.036832 -0.031046 0.000021 0.0259822 0.0259914 0.0259828 0.025985 0.0259961

3690 2 0.044678 0.083772 -0.076746 -0.04222 -0.000039 0.031765 0.037599 0.038034 0.038017 0.044737

26883 2 0.254769 0.660324 -0.53648 -0.139819 -0.000034 0.2526511 0.2527275 0.2527227 0.2525469 0.2526738

60954 2 -0.321378 -0.437447 0.399873 0.404237 0.000022 -0.318807 -0.318531 -0.318547 -0.318514 -0.318721

658 3 0.12

3606 3 0.12

700 4 0.0022 0.9 300000000 500

1299 4 0.0025 1.1 100000000 80

1876 4 0.002 1.2 200000000 30

2823 4 0.002 1 250000000 30

2800 4 0.002 1 250000000 30

3690 4 0.0022 1.3 300000000 70

26883 5 700 0.0446 100 0.1784

60954 5 1299 -0.789588 100 -0.63167

26883 6 0.02 5

DSP700 7 0.5 0.5

DIV1299 7 1 0

SRI3606 7 0 0.5

FieldType

To identify the list of instruments subject to

relevant market risk components

Parameters for Portfolio Margin

(1) In reality, RPFs are released on each business day at around 20:00. However, it is assumed that the same sample RPF is applied throughout the illustration for simplicity.

35

Calculation of Aggregated Market Risk Components

(1) According to the sample RPF, the confidence level for HVaR (HVaR_CL) is determined as 99.4%. As there are 1,000 scenarios for HVaR in the example, (1-99.4%) x 1,000 = 6 scenarios

(2) According to the sample RPF, the confidence level for SVaR (SVaR_CL) is determined as 98%. As there are 1,018 scenarios for SVaR in the example, (1-98%) x 1,018 = 21 scenarios

(rounding up to the nearest integer)

Tier P Summary Steps

1. Portfolio Margin

(FieldType 1,2)

Calculate the HVaR and SVaR scenario returns respectively for the portfolio

Rank and identify the worst scenarios for HVaR at 99.4% confidence level(1) & SVaR at 98% confidence level(2)

Calculate Portfolio Margin for the scenarios identified above, subject to portfolio margin floor

5. Flat Rate Margin

(FieldType 3)

Aggregate absolute market values of long and short positions separately

Choose the higher of aggregated long / aggregated short positions

Multiply the higher aggregated positions by the flat margin rate and flat rate margin multiplier

2. Liquidation Risk

Add-on (LRA)

(FieldType 4,5)

Instrument-level LRA:

Calculate delta equivalent position for each underlying group

Compare delta equivalent position with instrument-level threshold

Portfolio-level LRA:

Calculate beta hedge position for each underlying group

Compare beta hedge position with portfolio-level threshold (hedging instrument threshold)

3. Structured

Product Add-on

(FieldType 6)

Identify instruments applicable to Structured Product Add-on (i.e., listed under FieldType 6 and in long positions)

Calculate the add-on with the instrument-specific tick size multiplier and minimum tick size stated in the RPF

Tier N

Identify relevant instruments with unsettled position (i.e., traded before ex-date)

Calculate Corporate Action Position Margin with the corresponding add-on scenario stated under FieldType 7 4. Corporate Action

Position Margin

(FieldType 7)

Tier CA

CALCULATION EXAMPLE

(3 DAYS)

DAY 1

Illustration:1. Portfolio Margin2. Liquidation Risk Add-on3. Flat Rate Margin4. Structured Product Add-on

38

Day 1 Portfolio: 700.HK

DayTransaction

No.Position InstrumentID Quantity Contract Value Market Value Tier

Adjustment on Market Risk

Components

1 1 Short 700 -500,000 -240,000,000 -250,000,000 P

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

39

Day 1 Portfolio: 700.HK (Portfolio Margin)

i. Calculate the scenario returns for HVaR and SVaR

ii. Rank the scenarios and identify the worst 6 scenarios(1) for HVaR and 21 scenarios(2) for SVaR

iii. Calculate Portfolio Margin for the scenarios identified above and take absolute value

iv. Check the portfolio margin floor:

HVaR Scenario Returns

1 2 … 1,000

700 (3,477,500) 3,555,000 … 1,000

SVaR Scenario Returns

1 2 … 1,018

700 (10,256,500) (23,218,250) … 17,573,750

(1) (1-99.4% (HVaR_CL)) x 1,000 (HVaR_Scen_Count) scenarios = 6 scenarios, rounding up to the nearest integer

(2) (1-98% (SVaR_CL)) x 1,018 (SVaR_Scen_Count) scenarios = 21 scenarios, rounding up to the nearest integer

(3) Set as the higher of gross long/ short market values of all instruments subject to portfolio margin

(4) Portfolio Margin Floor Rate is currently set as 2.5%, but it is subject to change from time to time. HKSCC will issue circulars to notify the market before any change is made.

HVaR (75%) + SVaR (25%)

Average of the worst 6 HVaR scenarios* 75% + Average of the worst 21 SVaR scenarios * 25% = 4,892,225

+6,250,000

Portfolio Margin

Floor

Portfolio Margin

Floor Base(3)

Portfolio Margin

Floor Rate(4)

2.5%250,000,0006,250,000

DayTransaction


1 1 Short 700 -500,000 -240,000,000 -250,000,000 P

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

40

Day 1 Portfolio: 700.HK (Liquidation Risk Add-on)

Instrument-level LRA

i. Calculate the market value of delta equivalent position for

each underlying group

ii. Compare delta equivalent position with instrument-level

threshold found in RPF

+0+6,250,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

Portfolio-level LRA

i. Calculate the market value of beta hedge position for each

underlying group

ii. Compare beta hedge position with portfolio-level threshold

(hedging instrument threshold) found in RPF

Underlying

Group

Market Value of

Delta Equivalent

Position (in

Absolute Value)

Instrument-

level

Threshold

Bucket

Rate

Instrument-

level LRA

700 250,000,000 300,000,000 0.0022 0

Total for the portfolio 0

InstrumentID QuantityCash Delta per

Quantity

Market Value of Delta

Equivalent Position

700 -500,000 500 -250,000,000

Total for the underlying group 700 -250,000,000

Underlying

Group


Equivalent PositionBeta

Market Value of Beta

Hedge Position

700 -250,000,000 0.9 -225,000,000

Total for the portfolio -225,000,000

Market Value of

Beta Hedge

Position (in

Absolute Value)

Portfolio-

level

Threshold

Bucket

Rate

Portfolio-level

LRA

Total 225,000,000 250,000,000 0.002 0

DayTransaction


1 1 Short 700 -500,000 -240,000,000 -250,000,000 P

41

DayTransaction



Components

1 1 Short 700 -500,000 -240,000,000 -250,000,000 P Portfolio Margin


1 2 Short 658 -10,000,000 -62,000,000 -60,000,000 N

1 3 Long 3606 1,000,000 28,000,000 30,000,000 N

Day 1 Portfolio: Adding 658.HK and 3606.HK

+0+6,250,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

42

DayTransaction


1 2 Short 658 -10,000,000 -62,000,000 -60,000,000 N

1 3 Long 3606 1,000,000 28,000,000 30,000,000 N

Day 1 Portfolio: Adding 658.HK and 3606.HK (Flat Rate Margin)

(1) Flat rate margin multiplier is a CP-specific parameter. Please refer to the Daily Participant Margin Multiplier Report.

i. Aggregate absolute market value of long and short positions separately

ii. Choose the higher of aggregated long / aggregated short positions

iii. Multiply the higher aggregated positions by the flat margin rate and flat rate margin multiplier

InstrumentID QuantityAbsolute Market Value of Long Positions

in HKD equivalent

Absolute Market Value of Short Positions

in HKD equivalent

658 < 0 0 60,000,000

3606 0 30,000,000 0

Total 30,000,000 60,000,000

Flat Rate Margin

Market value of higher of

aggregated long / short

position

Flat Margin Rate

(i.e. 12%)

Flat Rate Margin

Multiplier(1)

(e.g. 2)

14,400,000 60,000,000 12% 2

+14,400,000+0+6,250,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

43

DayTransaction



Components



1 2 Short 658 -10,000,000 -62,000,000 -60,000,000 N Flat Rate Margin

1 3 Long 3606 1,000,000 28,000,000 30,000,000 N Flat Rate Margin

1 4 Long 26883 11,000,000 300,000 200,000 P

Day 1 Portfolio: Adding 26883.HK

Underlying stock

= 700.HK

+14,400,000+0+6,250,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

44

DayTransaction


1 1 Short 700 -500,000 -240,000,000 -250,000,000 P

1 4 Long 26883 11,000,000 300,000 200,000 P

i. Calculate the returns for each HVaR and SVaR scenario




Day 1 Portfolio: Adding 26883.HK (Portfolio Margin)



(3) Set as the higher of gross long / short market values of all instruments subject to portfolio margin


HVaR (75%) + SVaR (25%)

Average of the worst 6 scenarios * 75% + Average of the worst 21 scenarios* 25% = 5,017,059

Portfolio Margin

Floor

Portfolio Margin

Floor Base(3)

Portfolio Margin

Floor Rate(4)

2.5%250,000,0006,250,000


1 2 … 1,000

700 (3,477,500) 3,555,000 … 1,000

26883 27,292 (25,853) … 9


1 2 … 1,018

700 (10,256,500) (23,218,250) … 17,573,750

26883 50,954 132,065 … (130,327)

+6,250,000 +0 +14,400,000+0

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

45

+6,250,000 +0

Day 1 Portfolio: Adding 26883.HK (Liquidation Risk Add-on)

Portfolio-level LRA


underlying group

ii. Compare beta hedge position with portfolio-level

threshold (hedging instrument threshold) found in RPF






InstrumentID QuantityCash Delta

per Quantity


Equivalent Position

700 -500,000 500 -250,000,000

26883 11,000,000 0.1784 1,962,400

Total for the underlying group 700 -248,037,600

+14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

Underlying

Group

Market Value of

Delta Equivalent

Position (in

Absolute Value)

Instrument-

level

Threshold

Bucket

Rate

Instrument-

level LRA

700 248,037,600 300,000,000 0.0022 0

Total for the portfolio 0

Underlying

Group




Hedge Position

700 -248,037,600 0.9 -223,233,840

Total for the portfolio -223,233,840

Market Value of

Beta Hedge

Position (in

Absolute Value)

Portfolio-

level

Threshold

Bucket

Rate

Portfolio-level

LRA

Total 223,233,840 250,000,000 0.002 0

+0

DayTransaction


1 1 Short 700 -500,000 -240,000,000 -250,000,000 P

1 4 Long 26883 11,000,000 300,000 200,000 P

46

+6,250,000 +0

Day 1 Portfolio: Adding 26883.HK (Structured Product Add-on)

(1) Tick size multiplier is instrument-specific. Users can refer to the figures stated under column 2 of FieldType 6 for each relevant instrument.

(2) The current minimum tick size is set as 0.001. HKSCC will notify the market before any change is made.

i. Identify instrument which is subject to Structured Product Add-on as per the criteria below

• Whether the instrument is listed under FieldType 6 in the RPF

• Whether the instrument is under long position

ii. For instrument identified, calculate the add-on as below:

Structured Product

Add-onQuantity Tick size multiplier(1) Minimum tick

size(2)

0.001555,000 11,000,000

DayTransaction


1 4 Long 26883 11,000,000 300,000 200,000 P

+55,000 +14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

+0

47

DayTransaction



Components





1 4 Long 26883 11,000,000 300,000 200,000 P

Portfolio Margin



Day 1 Portfolio: Summary

+0+6,250,000 +55,000 +14,400,000

3. Structured

Product Add-on

(FieldType 6)

4. Corporate Action

Position Margin

(FieldType 7)

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

5. Flat Rate Margin

(FieldType 3)

48

Holiday Add-on (Not applicable

at launch of NGRM)

Day 1 Portfolio: Margin Adjustments

Flat Rate Margin



Corporate Action

Position Margin

Portfolio Margin 6,250,000

0


component Margin20,705,000

(1) Derive Aggregated Market-risk-component Margin and round up to the nearest 10,000 (with reference to the rounding parameter stated in the RPF)

(2) Obtain favorable MTM from “MTM and Margin Requirement Report”

(3) Margin Credit (normally 5,000,000) is granted to each CP and can be used to offset Net Margin


Margin

Rounding(1)

Favorable

MTM(2)

Margin

Credit(3)

Margin Adjustments

20,710,000

0

-5,000,000

Net Margin after Credit = 15,710,000

55,000

0

14,400,000

0

49

Day 1 Portfolio: Other Risk Components

(1) All of the other risk components can be obtained from the “MTM and Margin Requirement Report”. The figures shown are hypothetical for illustration purpose.

MTM Requirement


Ad-hoc Add-on

Total MTM and Margin Requirement

= 22,096,500

Other Risk Components(1)

6,100,000

166,500

0

120,000

Credit Risk Add-on (Not

applicable at launch of NGRM)

Margin

Rounding

Favorable

MTM

Margin

Credit

Margin Adjustments

20,710,000

0

-5,000,000


DAY 2

Illustration:1. Corporate Action Position Margin2. Portfolio Margin (Cross-day Netting)3. Liquidation Risk Add-on (Cross-day Netting)4. Specific Stock Collateral and Specific Cash Collateral

51

DayTransaction



Components





1 4 Long 26883 11,000,000 300,000 200,000 P

Portfolio Margin



Day 2 Portfolio: Corporate Action (Distribution in Specie) on 700.HK

+0 +55,000 +14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

+6,250,000

Distribution in Specie

Stock: 700.HK

Ex-date: Day 2

Entitlement ratio: 0.2

DayTransaction



Components

1 1 (Adj.) Short 700 -500,000 -240,000,000 -200,000,000 P Portfolio Margin


2 1 Short DSP700 -100,000 0 -50,000,000 CA

Price adjustment on 700.HK on ex-date ($500 -> $400)

52

+25,000,000

Day 2 Portfolio: Corporate Action Position Margin on 700.HK

i. Calculate the net mark-to-market (“MTM”) value of positions

ii. Apply net MTM value under to corresponding add-on scenario

InstrumentID Quantity Contract Value Market Value Net MTM Value

DSP700 < 0 0 -50,000,000 -50,000,000

Corporate Action Position Margin

(in Absolute Value)Net MTM Value

Short Position

Add-on(1)

-50,000,00025,000,000 0.5

DayTransaction


2 1 Short DSP700 -100,000 0 -50,000,000 CA

+0 +55,000 +14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

+6,250,000

(1) Users can refer to FieldType 7 for the Short Position Add-on.

53

+25,000,000

Day 2 Portfolio: Adding 700.HK (Cross-day Netting)

+0+6,250,000 +55,000 +14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

DayTransaction



Components





1 4 Long 26883 11,000,000 300,000 200,000 P

Portfolio Margin



2 1 Short DSP700 -100,000 0 -50,000,000 CA Corporate Action Position Margin

2 2 Long 700 1,500,000 576,000,000 600,000,000 P

54

+25,000,000

DayTransaction



Components





1 4 Long 26883 11,000,000 300,000 200,000 P

Portfolio Margin




2 2 Long 700 1,500,000 576,000,000 600,000,000 P

Day 2 Portfolio: Adding 700.HK (Cross-day Netting)

+0+6,250,000 +55,000 +14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

DayTransaction



Components

2 2 (Net) Long 700 1,000,000 336,000,000 400,000,000 P Portfolio Margin


Cross-day Netting is applied on 700.HK positions (Day 1 and Day 2)

55

+25,000,000

+6,250,000

+5,626,227





Day 2 Portfolio: Adding 700.HK (Portfolio Margin – Cross-day Netting)

(1) (1-99.4% (HVaR_CL)) x 1,000 (HVaR_Scen_Count) scenarios = 6 scenarios, rounding up to the nearest integer.

(2) (1-98% (SVaR_CL)) x 1,018 (SVaR_Scen_Count) scenarios = 21 scenarios, rounding up to the nearest integer.



HVaR (75%) + SVaR (25%)

Average of the worst 6 scenarios * 75% + Average of the worst 21 scenarios* 25% = 11,876,227

Portfolio Margin

Floor

Portfolio Margin

Floor Base(3)

Portfolio Margin

Floor Rate(4)

2.5%400,200,00010,005,000


1 2 … 1,000

700 5,564,000 (5,688,000) … (1,600)

26883 27,292 (25,853) … 9


1 2 … 1,018

700 16,410,400 37,149,200 … (28,118,000)

26883 50,954 132,065 … (130,327)

DayTransaction


1 4 Long 26883 11,000,000 300,000 200,000 P

2 2 (Net) Long 700 1,000,000 336,000,000 400,000,000 P

+0 +55,000 +14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

56

+25,000,000

Portfolio-level LRA


underlying group



Day 2 Portfolio: Adding 700.HK (Liquidation Risk Add-on – Cross-day Netting)




Note (*): Cash Delta per Quantity is adjusted on ex-date



+447,849 +55,000 +14,400,000

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

+6,250,000

+5,626,227


per Quantity


Equivalent Position

700 1,000,000 400* 400,000,000

26883 11,000,000 0.1784 1,962,400

Total for the underlying group 700 401,962,400

Underlying

Group

Market Value of

Delta Equivalent

Position (in

Absolute Value)

Instrument-

level

Threshold

Bucket

Rate

Instrument-

level LRA

700 401,962,400 300,000,000 0.0022 224,317

Total for the portfolio 224,317

Underlying

Group




Hedge Position

700 401,962,400 0.9 361,766,160

Total for the portfolio 361,766,160

Market Value of

Beta Hedge

Position (in

Absolute Value)

Portfolio-

level

Threshold

Bucket

Rate

Portfolio-level

LRA

Total 361,766,160 250,000,000 0.002 223,532

1. Portfolio Margin

(FieldType 1,2)

DayTransaction


1 4 Long 26883 11,000,000 300,000 200,000 P

2 2 (Net) Long 700 1,000,000 336,000,000 400,000,000 P

57

+25,000,000

DayTransaction



Components

1 1 (Adj.) Short 700 -500,000 -240,000,000 -200,000,000 P

Portfolio Margin


(With Cross-day Netting)



1 4 Long 26883 11,000,000 300,000 200,000 P

Portfolio Margin




2 2 Long 700 1,500,000 576,000,000 600,000,000 P

Portfolio Margin



Day 2 Portfolio: Pledging Specific Stock Collateral (“SSC”) to 658.HK

Pledging Specific Cash Collateral (“SCC”) to 3606.HK

+447,849

To pledge

(i) 8,000,000 shares as SSC to 658.HK

(ii) $5,000,000 cash as SCC to 3606.HK

+55,000 +14,400,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

+11,876,227

58

+25,000,000+447,849

(1) Flat rate margin multiplier is a CP-specific parameter. Please refer to the Daily Participant Margin Multiplier Report.

DayTransaction


1 2 Short 658 -10,000,000 -62,000,000 -60,000,000 N

1 3 Long 3606 1,000,000 28,000,000 30,000,000 N

Day 2 Portfolio: Pledging SSC to 658.HK & SCC to 3606.HK

i. Calculate the resulting uncovered positions after pledging SSC / SCC (i.e., positions covered by SSC / SCC are excluded from margin calculation)

ii. Aggregate absolute market value of long and short positions separately

iii. Choose the higher of aggregated long/ aggregated short positions

iv. Multiply the higher aggregated positions by the flat margin rate and flat rate margin multiplier

InstrumentID QuantityAbsolute Market Value of Long Positions

in HKD equivalent

Absolute Market Value of Short Positions

in HKD equivalent

658 < 0 0 12,000,000

3606 0 25,000,000 0

Total 25,000,000 12,000,000

Flat Rate Margin

Market value of Higher of

Aggregated Long / Short

Position

Flat Margin Rate

(i.e. 12%)

Flat Rate Margin

Multiplier(1)

(e.g. 2)

6,000,000 25,000,000 12% 2

+14,400,000

-8,400,000+55,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

+11,876,227

DayTransaction

No.Position InstrumentID Adjusted Quantity Adjusted Contract Value Adjusted Market Value Remarks

1 2 (Adj.) Short 658 -2,000,000 -12,400,000 -12,000,000 SSC of 8,000,000 shares pledged

1 3 (Adj.) Long 3606 833,333 23,333,333 25,000,000 SCC of $5,000,000 pledged

59

+11,876,227

DayTransaction



Components

1 1 (Adj.) Short 700 -500,000 -240,000,000 -200,000,000 P

Portfolio Margin



1 2 (Adj.) Short 658 -2,000,000 -12,400,000 -12,000,000 N Flat Rate Margin

(With SSC pledged)

1 3 (Adj.) Long 3606 833,333 23,333,333 25,000,000 N Flat Rate Margin

(With SCC pledged)

1 4 Long 26883 11,000,000 300,000 200,000 P

Portfolio Margin




2 2 Long 700 1,500,000 576,000,000 600,000,000 P

Portfolio Margin




+447,849 +25,000,000+55,000 +6,000,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

60


at launch of NGRM)


Flat Rate Margin



Corporate Action

Position Margin


447,849





(3) Margin Credit (normally 5,000,000) is granted to each CP and can be used to offset Net Margin


Margin

Rounding(1)

Favorable

MTM(2)

Margin

Credit(3)

Margin Adjustments

43,380,000

-15,966,667

-5,000,000


55,000

25,000,000

6,000,000

0

61


(1) All of the other risk components can be obtained from the “MTM and Margin Requirement Report”. The figures shown are hypothet ical for illustration purpose.

MTM Requirement


Ad-hoc Add-on


= 22,945,133


0

406,800

0

125,000



Margin

Rounding

Favorable

MTM

Margin

Credit

Margin Adjustments

43,380,000

-15,966,667

-5,000,000


DAY 3

Illustration:1. Treatment on Position Brought Down2. Portfolio Margin (IPO segregation)

63

DayTransaction



Components

1 1 (Adj.) Short 700 -500,000 -240,000,000 -200,000,000 P

Portfolio Margin



1 2 (Adj.) Short 658 -2,000,000 -12,400,000 -12,000,000 N Flat Rate Margin

(With SSC pledged)

1 3 (Adj.) Long 3606 833,333 23,333,333 25,000,000 N Flat Rate Margin

(With SCC pledged)

1 4 Long 26883 11,000,000 300,000 200,000 P

Portfolio Margin




2 2 Long 700 1,500,000 576,000,000 600,000,000 P

Portfolio Margin



Day 3 Portfolio: Day 1 Position Settled

Position yet to be settled

+447,849 +25,000,000+55,000 +6,000,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

+11,876,227

64

+11,876,227

(to be revised)

DayTransaction


2 2 Long 700 1,500,000 576,000,000 600,000,000 P

Day 3 Portfolio: Position Brought Down (700.HK)

00 0

+447,849

(to be revised)

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

65

+11,876,227

+5,721,118

Day 3 Portfolio: Position Brought Down (700.HK) (Portfolio Margin)






1 2 … 1,000

700 8,346,000 (8,532,000) … (2,400)

SVaR Scenarios Returns

1 2 … 1,018

700 24,615,600 55,723,800 … (42,177,000)



(3) Set as the higher of gross long/ short market values of all instruments subject to portfolio margin


HVaR (75%) + SVaR (25%)

Average of the worst HVaR 6 scenarios* 75% + Average of the worst SVaR 21 scenarios * 25% = 17,597,345

Portfolio Margin

Floor

Portfolio Margin

Floor Base(3)

Portfolio Margin

Floor Rate(4)

2.5%600,000,00015,000,000

DayTransaction


2 2 Long 700 1,500,000 576,000,000 600,000,000 P

+447,849

(to be revised)

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

66

Day 3 Portfolio: Position Brought Down (700.HK) (Liquidation Risk Add-on)

Portfolio-level LRA


underlying group








1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

InstrumentID QuantityCash Delta per

Quantity


Equivalent Position

700 1,500,000 400 600,000,000


Underlying

Group

Market Value of

Delta Equivalent

Position (in

Absolute Value)

Instrument-

level

Threshold

Bucket

Rate

Instrument-

level LRA

700 600,000,000 300,000,000 0.0022 660,000


Underlying

Group




Hedge Position

700 600,000,000 0.9 540,000,000

Total for the portfolio 540,000,000

Market Value of

Beta Hedge

Position (in

Absolute Value)

Portfolio-level

Threshold

Bucket

Rate

Portfolio-level

LRA

Total 540,000,000 250,000,000 0.002 580,000

+11,876,227

+5,721,118

+447,849

+792,151

DayTransaction


2 2 Long 700 1,500,000 576,000,000 600,000,000 P

67

Day 3 Portfolio: Adding 1876.HK (IPO Stock)

+17,597,345 +1,240,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

DayTransaction



Components

2 2 Long 700 1,500,000 576,000,000 600,000,000 P Portfolio Margin


3 1 Long 1876 100,000 2,700,000 3,000,000 P

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

IPO Stock

>> Separate group in portfolio margin

calculation

68





Day 3 Portfolio: Adding 1876.HK (Portfolio Margin)

(1) (1-99.4% (HVaR_CL)) x 1,000 (HVaR_Scen_Count) scenarios = 6 scenarios, rounding up to the nearest integer.

(2) (1-98% (SVaR_CL)) x 1,018 (SVaR_Scen_Count) scenarios = 21 scenarios, rounding up to the nearest integer.



HVaR (75%) + SVaR (25%)

Non-IPO: Average of the worst 6 scenarios* 75% + Average of the worst 21 scenarios * 25% = 17,597,345

IPO: Average of the worst 6 scenarios* 75% + Average of the worst 21 scenarios* 25% = 11,544

Portfolio Margin

Floor

Portfolio Margin

Floor Base(3)

Portfolio Margin

Floor Rate(4)

2.5%603,000,00015,075,000

HVaR Scenario Returns (Non-IPO Instrument)

1 2 … 1,000

700 8,346,000 (8,532,000) … (2,400)

SVaR Scenario Returns (Non-IPO Instrument)

1 2 … 1,018

700 24,615,600 55,723,800 … (42,177,000)

HVaR Scenario Returns (IPO Instrument)

1 2 … 1,000

1876 33,384 (44,367) … (9)

SVaR Scenario Returns (IPO Instrument)

1 2 … 1,018

1876 121,848 228,468 … (166,599)

+17,597,345

+11,544 +1,240,000

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

DayTransaction



Components



3 1 Long 1876 100,000 2,700,000 3,000,000 P

69

Portfolio-level LRA


underlying group

ii. Compare beta hedge position with portfolio-level threshold

(hedging instrument threshold) found in RPF

Day 3 Portfolio: Adding 1876.HK (Liquidation Risk Add-on)


i. Calculate the market value of delta equivalent position

for each underlying group




per Quantity


Equivalent Position

700 1,500,000 400 600,000,000


InstrumentIDMarket Value of Delta



Hedge Position

700 600,000,000 0.9 540,000,000

1876 3,000,000 1.2 3,600,000

Total for the portfolio 543,600,0001876 100,000 30 3,000,000


InstrumentID

Market Value of

Delta

Equivalent

Position

Instrument-

level

Threshold

Bucket

Rate

Instrument-

level LRA

700 600,000,000 300,000,000 0.0022 660,000

1876 3,000,000 200,000,000 0.002 0


+1,240,000

+7,200

+17,597,345

+11,544

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

Market Value of

Beta Hedge

Position (in

Absolute Value)

Portfolio-level

Threshold

Bucket

Rate

Portfolio-level

LRA

Total 543,600,000 250,000,000 0.002 587,200

DayTransaction



Components



3 1 Long 1876 100,000 2,700,000 3,000,000 P

70


+17,608,889 +1,247,200

1. Portfolio Margin

(FieldType 1,2)

2. Liquidation Risk

Add-on

(FieldType 4,5)

3. Structured

Product Add-on

(FieldType 6)

5. Flat Rate Margin

(FieldType 3)

4. Corporate Action

Position Margin

(FieldType 7)

DayTransaction



Components



3 1 Long 1876 100,000 2,700,000 3,000,000 P

Portfolio Margin

(IPO Segregation)


71


at launch of NGRM)


Flat Rate Margin



Corporate Action

Position Margin


1,247,200





(3) Margin Credit (normally 5,000,000) is granted to each CP and can be used to offset Net Margin.


Margin

Rounding(1)

Favorable

MTM(2)

Margin

Credit(3)

Margin Adjustments

18,860,000

-24,300,000

-5,000,000

Net Margin after Credit = 0

0

0

0

0

72


(1) All of the other risk components can be obtained from the “MTM and Margin Requirement Report”. The figures shown are hypothetical for illustration purpose.

MTM Requirement


Ad-hoc Add-on


= 273,000


0

150,000

0

123,000



Margin

Rounding

Favorable

MTM

Margin

Credit

Margin Adjustments

18,860,000

-24,300,000

-5,000,000

Net Margin after Credit = 0

THANK YOU FOR COMING

Visit HKEX website NextGen Post Trade Programme for further info:

• Email enquiries : [email protected]

• NGRM Hotline: 2211 6828

• NG Post Trade Programme RSS Feed:

https://www.hkex.com.hk/Services/RSS-Feeds/NextGen-Post-Trade-Programme?sc_lang=en

https://www.hkex.com.hk/Services/RSS-Feeds/NextGen-Post-Trade-Programme?sc_lang=en

74

DISCLAIMER

The information contained in this presentation is for general informational purposes only and does not constitute an offer, solicitation, invitation or

recommendation to subscribe for or purchase any securities or other products or to provide any investment advice of any kind. This presentation is not

directed at, and is not intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution or use would be

contrary to law or regulation or which would subject Hong Kong Exchanges and Clearing Limited (“HKEX”) to any registration requirement within such

jurisdiction or country.

This presentation contains forward-looking statements which are based on the current expectations, estimates, projections, beliefs and assumptions of

HKEX about the businesses and the markets in which it and its subsidiaries operate or aspires to operate in. These forward-looking statements are not

guarantees of future performance and are subject to market risk, uncertainties and factors beyond the control of HKEX. Therefore, actual outcomes and

returns may differ materially from the assumptions made and the statements contained in this presentation. The implementation of these initiatives is

subject to a number of external factors, including government policy, regulatory approval, the behaviour of market participants, competitive

developments and, where relevant, the identification of and successful entry into agreements with potential business partners. As such, there is no

guarantee that the initiatives described herein will be implemented, or that they will be implemented in the form and timeframe described herein.

Although the information contained in this presentation is obtained or compiled from sources believed to be reliable, HKEX does not guarantee the

accuracy, validity, timeliness or completeness of the information or data for any particular purpose, and shall not accept any responsibility for, or be

liable for, errors, omissions or other inaccuracies in the information or for the consequences thereof. The information set out in this presentation is

provided on an “as is” and “as available” basis and may be amended or changed. It is not a substitute for professional advice which takes account of

your specific circumstances and nothing in this document constitutes legal advice. HKEX shall not be responsible or liable for any loss or damage,

directly or indirectly, arising from the use of or reliance upon any information provided in this presentation.

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